When is a war not a war? The answer to that question affects the compensation Israel’s government pays to businesses depressed by the effects of a conflict. And so far, the authorities are not classifying the barrage of more than 1,000 Gaza rockets on Israel over two weeks as a war.
When war hits home — literally — the Israeli government is there to help out, providing compensation for losses that homes and businesses sustain from direct missile and rocket damage. When the losses are a bit less tangible, as when a war atmosphere depresses customers, causing sales to tumble, Israelis are often on their own.
For many business people, the difference between getting compensated and not getting compensated is, it turns out, a matter of semantics. If it’s a “war,” the government will help out; if it’s something less, compensation may not be forthcoming.
Despite nearly incessant rocket attacks, Israel has sustained remarkably few casualties, both in persons and property. One person was killed as a direct result of Hamas attacks Tuesday, and several people have been injured — but most of the damage has been restricted to property.
Even that damage, according to the Property Tax division of the Finance Ministry (Mas Rechush), which is responsible for determining who gets compensated and how much they get, is less than expected — mostly because of the success of Iron Dome, Israel’s missile and rocket defense system. As of Tuesday, officials said, some 600 claims had been filed requesting compensation for damage from rockets. Although that number is expected to rise, they said that the pace of compensation requests was far slower so far than during the first nine days of Operation Pillar of Defense in 2012, when Israel endured similar rocket attacks from Gaza terrorists.
But that’s only part of the picture. Losses are measured not just in physical damage. When rockets are flying, people aren’t in the mood to spend, and they tend to stay close to home — buying basics at the local market and giving up the material charms of the mall. In addition, workers have been staying home, and not just in the south. As many as 20% of workers in the Tel Aviv have been calling in sick over the past week, not only concerned with their personal safety, but also hesitant to leave their kids alone at home.
Figures released Tuesday night by the Israel Industrialists Association provide a partial picture of the problems businesses are facing. Members of the Association include mostly medium-sized and small manufacturers and commercial enterprises. According to the group, its members have lost NIS 345 million over the past nine days in reduced productivity and worker absenteeism. Figures for the rest of the economy will likely be published by the Finance Ministry only at the end of the month, sources in the ministry said.
Speaking in a television interview Tuesday night, supermarket chain owner Rami Levy said that sales were down in many of his stores. Not surprisingly, Ashdod, a frequent target of the rockets, is the worst hit, experiencing a loss of 30% in sales. In some places, however, sales were up slightly, he said — probably due to people stocking up on supplies. “But that is not going to last,” Levy said, adding that many of his workers, too, were staying home to tend to their children during the long, hot summer vacation.
Retail sales in general are significantly down, according to metrics organizations and casual observers. The impression that many visitors have that the usually busy Israeli malls are “empty” is backed up by statistics issued by Shva, a clearinghouse for Israeli credit card purchases. Charges overall are down about 18%, the group said.
Last week, the military’s Homefront Command and Finance Ministry declared a “Special Security Situation,” a term that describes not just the reality of the falling rockets, but an economic reality as well. Under the rules instituted by the Tax Authority and National Insurance Institute, individuals and businesses directly affected by the war are allowed to request compensation for losses due to damage caused by rocket hits, shrapnel, or other factors related to the war.
Actually, “war” is the wrong term — because declaring that Israel is involved in a war would activate a further set of compensation possibilities, according to Yael Gottlieb of the Misgav Insurance Agency. “A declaration of war increases the level and scope of compensation, applying it to more people,” Gottlieb said. “For example, a declaration of war would allow an individual who canceled a trip to get compensation, whereas without one, the individual might lose all or part of his payments.” That declaration is made by the government (the Defense, Economic, and Finance Ministries), and is implemented by the Homefront Command, but as in other recent conflicts, no “war” has been declared.
A war classification also helps businesses to get compensation for losses — something a Special Security Situation declaration does not. The Property Tax people, who are responsible for compensation, generally pay for direct losses due to damage to buildings and inventory, but not for loss of business. In a special decision on Sunday, the Finance Ministry said that businesses in front line communities such as Sderot, right next to Gaza, will be compensated for indirect losses, like a dip in sales or canceled contracts. But that does not apply to businesses in the center of the country. As to how long it takes the Property Tax division to pay compensation, Gottlieb said that the government has promised to expedite the funds “in a timely manner.”
It’s unlikely that the current operation will be “upgraded” to a war, even if it continues for an extended period. The last “war” Israel participated in was Operation Peace for Galilee, the name for the war in Lebanon back in 1982. In contrast, the conflicts of 2006 (Second Lebanon War), Operation Cast Lead (2008) and Operation Pillar of Defense (2012) in Gaza, along with the current operation, were all “special security situations.”
In 2007, the High Court decided in response to a petition on this issue that, despite the major losses to businesses in the north, the government could not be required to retroactively upgrade the Second Lebanon conflict to a war, though it featured 4,000 missiles raining down on Israel and an IDF ground operation in Lebanon. According to the court, Israeli law does not require a correlation between action on the ground and a specific legal status. “The phrase ‘war’ appears in various pieces of legislation,” including a Basic Law, said the court, “and the interpretation of it depends on the purpose of specific legislation and the legislative environment in which that expression appears,” meaning that the government’s decision on what constitutes “war” is final.
Had the court ruled otherwise, the government could have been required to pay hundreds of millions of shekels in compensation to hotel owners, pizza shops, clothing stores, contractors, factories — basically any business that suffered material losses due to the conflict, including loss of productivity due to absent workers, sales cancelled because of the war atmosphere, and a contraction of business because of the general dip in economic activity that often accompanies wars.
If the government isn’t providing compensation, said Gottlieb, it’s up to Israelis to defend their own property, by making sure that they have sufficient insurance to ensure replacement of damaged property and lost income. Israeli insurance companies, well familiar with the government’s reluctance to shell out for all losses, have even turned the legal imbroglio into a business opportunity, selling a product called terror insurance, which does fill in many of the gaps in the government’s compensation program. Gottlieb, of course (she is, after all, an insurance agent) highly recommends buying that product, among others.
“Israel has had a long experience of terror attacks and war, and we know that the government does cover much of the losses due to those situations,” Gottlieb said. “But there are many cases where this is not the case, and that’s where terrorism insurance can come in very handy. Like any other insurance, it’s the kind of thing you wish you didn’t have to pay for — but when you need it, you’re very happy you did. Considering the risks, buying insurance is just the prudent thing to do.”
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